Fintech Forum Propelling Financial Regulation Forward
An industry that believes financial services is on the precipice of real change. State regulators who have a history of adapting to meet consumer financial needs. Banks leveraging fintech to transform customer-facing activities. And consumer groups underscoring the importance of data security.
That’s just a sampling of takeaways from the CSBS Fintech Forum, held earlier this month in Brooklyn. The Forum featured panel discussions on consumer and small business lending, payments and money transmission, banks and innovation, blockchain technology, and state regulatory insights.
Attracting more than 130 officials from fintechs, state regulators, banks and consumer groups, the forum served as a mid-point check in for the CSBS Fintech Industry Advisory Panel. The panel, comprised of 33 fintechs, is charged with identifying ways to remove friction in the state regulatory system while strengthening consumer protections in the fintech ecosystem. The panel has subgroups on lending, payments, and community banking.
John Ryan, CSBS president and CEO, commented: “Both the forum and advisory panel meetings are empowering regulators and fintechs alike with knowledge and perspective. All of us have a better understanding of business models, delivery systems, customer experiences, and regulatory impact. And we are identifying priorities to drive action.”
Setting the tone for the forum was CSBS Chairman Albert Forkner. “We as regulators want to make sure that consumers have access to great products with strong protections, businesses operate on sound financial footing, and transactions function properly and securely.” Forkner is also commissioner of the Wyoming Division of Banking.
Underscoring the need to take action, Forkner announced that all 50 states and the District of Columbia had identified Innovation Contacts within their agencies. The purpose: make it easier for fintechs to connect with state agencies through a primary point of contact. He also reiterated regulators’ broader commitment, known as CSBS Vision 2020, to move towards an integrated, 50-state system of licensing and supervision for fintechs and other non-banks.
Putting the regulation of fintech innovation into an historical context was Maria Vullo, superintendent of the New York Department of Financial Services. She described how states have long been the source of innovation in financial services with developments such as checking accounts and regulatory structures to enable money transmission and, more recently, virtual currency.
“This resilience by the states, this courage to innovate, and this desire to excel at providing an ever-widening array of safe and sound innovative products, flows through the blood of our New York state chartered and licensed institutions, and those of the many states who are present at this forum today.”
Other takeaways from the forum:
- Fintechs believe that, in the money transmission business, transaction costs to the consumer will continue to decline, forcing fintechs to rely more on new or other products and services which regulators also will need to understand
- Consumer groups cautioned against relying too heavily on automated decision models that have yet to be tested in an economic downturn
- State regulators explained how they focus on underlying business activities, and not technology alone, to apply applicable state laws
- Banks explained how outsourcing does not relieve them of the responsibility to assure a positive customer experience and compliance with applicable laws and regulation
- Fintechs discussed how they are using various business models – from simplifying initial customer engagement to specializing in micro-lending – to penetrate small business and consumer lending
- Consumer groups emphasized that fintech products must not put consumer funds at risk, and in cases where that occurs there be an orderly process to return funds
- In building enterprise risk management, state regulators advised fintechs to focus on this question, “How do we know you are running your business well?”
- State regulators described how, through CSBS, they are developing a next generation technology platform to transform the licensing and supervision of fintechs and other non-banks
- On data security, fintechs described different approaches such as encryption techniques and, for those working with banks, keeping data with bank partners and focusing instead on product security
- All agreed that the core data issue is one of balancing convenience versus security, and that with the value of data comes the risk of data security
Attendees left the forum energized to enhance the state regulatory system such that it enables more fintech innovation while protecting consumers. Summing up the past several months was Jana Hocker, compliance officer at Intuit Quickbooks Capital: “State activity has been phenomenal.”
What to expect next? The CSBS advisory panel is continuing its work, with expectations for actionable items by the fall.